Credit method – Country of residence retains the right to tax the foreign income but credit is allowed for the taxes paid in the source state. India follows credit method for most of its tax treaties. The loss of revenue in this method to the residence country is lower vis-a-vis the other menthods.
Country of residence allows full credit for taxes paid in the source country in respect of income taxed in the country of residence. India does not follow the full credit method for giving credit to its residents except in the case of Namibia DTAA where full credit is provided in respect of taxes paid in Namibia. Relevant clause of India-Nambia DTAA reads as under –
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